Utica shale bringing jobs to Eastern Ohio

Liquids-rich shale stokes economic development

SteveGelsi

Energy companies and suppliers are moving into the Utica shale of Ohio

NEW YORK (MarketWatch) —The hardscrabble city of Youngstown, Ohio, hadn’t seen a major industrial expansion in decades.

That finally changed in 2010, when European conglomerate Vallourec SA
VLOWY, -3.39%
(VK) said it would significantly scale up in the region with an investment of $650 million and 350 jobs for a new pipe-making plant for its V&M Star unit.

“It’s probably the largest steel plant in Youngstown since the 1920s,” said Tony Paglia of the Youngstown/Warren Regional Chamber.

At first, the V&M Star planned to supply pipe for horizontal drilling in the oil and gas fields of Marcellus shale, mostly across the state line in Pennsylvania.

Now, more job creation opportunity has emerged closer to home as energy companies develop one of the newest and hottest shale plays in the U.S. -- the Utica shale of Ohio. Much of the oil-rich region lies within a corner of the country that’s suffered from high unemployment for many years.

“V&M Star decided when they saw the Marcellus shale they needed to have a plant nearby that provided products [there],” Paglia said in a telephone interview. “Once they started that, then the Utica shale became prominent -- so that makes it an even better project.”

A spokesman for V&M Star referred to published remarks by President Joel Mastervich, who said the region is “extremely well-suited” to supply local shale plays and that the area offers high quality workers.

About 1,500 jobs have been added or announced in the last 18 months in the Mahoning Valley -- the region that includes Youngstown and the surrounding region.

Among them, companies such as U.S. Steel
X, -2.25%
and Exterran Holdings
EXH
have announced big investments.

Cleveland Plus, an economic development group that encompasses Youngstown, Canton, Cleveland and Northeast Ohio, has notched private investment totaling nearly $10 billion in recent years.

“We seeing an unprecedented amount of growth in this area after 30 years of recession,” Paglia said. “Some existing companies that hung on through the hard times have seen business from oil and gas, manufacturing or fabrication.”

As energy companies move into the Utica shale of eastern Ohio, local economic development officials are laying down a welcome mat in their efforts to bring more jobs to the region that fell on hard times after the steel industry starting scaling back in the 1960s and 70s.

Oil has already played a part in Ohio’s economic history dating back to the late 1800s, but the bulk of the industry began moving out after bigger oil strikes in Texas near the turn of the century.

Vallourec

Vallourec’s new V&M Star plant in Youngstown nears completion as a supplier for pipe to the developing energy fields in Ohio, Pennsylvania and elsewhere.

With more modern horizontal drilling techniques nowadays, oil- and natural- gas liquids opportunities encompass the Youngstown area, along with a large swath of the state.

Tom Waltermire, president of Team NEO, a regional economic development group, said Chesapeake Energy Corp.
CHK, -1.63%
has been buying up drilling rights mostly in rural areas, funneling an estimated $2 billion to local landowners. A Chesapeake spokesman confirmed that dollar figure.

In one of the freshest deals in the Utica, BP PLC
BP, -1.85%
said on March 27 it agreed to lease 84,000 acres in Trumbull County, Ohio, from the Associated Landowners of the Ohio Valley. Terms of the deal weren’t disclosed.

“We’re dealing with a whole bunch of people showing up and wanting to set up offices,” said Waltermire. “What you do is help them find the right property for them. They show up and say where can we go? Then they take over industrial buildings and office buildings.”

Companies have been putting up billboards offering training, and a local Utica shale trade conference at the Covelli Centre in Youngstown last November drew about 2,000 people.

“The biggest shortage right now is experienced commercial truck drivers,” Waltermire said. “Companies have to compete for this.”

Chesapeake hiring in Ohio, expands Utica efforts

Chesapeake spokesman Pete Kenworthy said the Oklahoma City, Okla., company now employs about 250 people in Ohio, up from 40 at the beginning of 2011. The company has been holding open houses to fill positions, as it moves to develop 1.35 million acres of energy leases in the Utica.

Dix & Eaton

Chesapeake runs a rig in the Utica shale with plans to add more in the near future.

“We will continue to gather information and move forward with our plans to increase our rig count in Ohio to 20 rigs by the end of the year and to build a significant gathering and midstream complex in the region to accommodate an anticipated increase in production of natural gas liquids,” Kenworthy said.

His comments played off bullish comments to Wall Street on the Utica by Chesapeake executive Jeff Mobley.

“We think this will be one of the most attractive plays in America and we are looking forward to not only accelerating the development in the liquids-rich portion of the play, but also delineating the oil window later this year,” Mobley said at a March 5 investors conference.

Exxon Mobil
XOM, -1.29%
made a point to tell Wall Street investors last month that it’s accumulated drilling rights in more than 75,000 acres in the Utica shale. The oil major plans to begin its first well in the Utica shale this year.

With natural gas prices trading at multi-year lows, some jobs have been lost in areas where drilling rigs have been pulled out due to a glut of supply.

However, the Utica continues to attract interest because of its offerings of $100-a-barrel oil and natural gas liquids, which usually command higher prices than natural gas.

Earthquakes near wastewater injection well

The development of shale plays in the region hasn’t been worry-free, however.

For years, Ohio has served as a disposal site for truckloads of wastewater used in hydraulic fracturing, or fracking -- the process used to extract oil and natural gas by breaking up shale deep underground to release fossil fuel.

The water is pumped deep underground into disposal wells. In 2011, Ohio regulators measured 12 low-magnitude seismic events centered less than a mile from the Northstar 1 injection well near Youngstown.

On Dec. 31, a 4.0 magnitude earth quake was measured in the Youngstown area, one day after regulators halted wastewater injection into the well. Ohio Gov. John Kasich then placed a moratorium on three injection wells and one with a pending permit near the Northstar 1 well, according to the Ohio Department of Natural Resources.

Fracking has also drawn concern from environmentalists and policy makers as a possible threat to groundwater. In one case in Pennsylvania, Cabot Oil & Gas
COG, -2.32%
had been delivering drinking water to about a dozen families in the town of Dimock. The federal Environmental Protection Agency has been testing water in the area and lawsuits by a few home owners are pending.

Ohio State Rep. Bob Hagan, D., Youngstown, said in a March 7 YouTube video he collected 1,500 signatures from his constituents calling for hearings on fracking. Along with Mike Foley, D., Cleveland, he called for proposed taxes for natural gas production to be more in line with other states; also a local impact fund to pay for roads and other community benefits.

Paglia, of the Youngstown/Warren Regional Chamber, said the business community supports economic development from the energy business, but wants it done right.

“We welcome laws that ensure that what's going on at the well head is done properly,” Paglia said. “There are going to be risks in oil and gas development. We’re seeing that laws are being made to meet concerns people have.”

Looking ahead, economic development officials are encouraged that Shell Chemical, a unit of Royal Dutch Shell
RDS.A, -0.68%
said it’s studying the construction of a cracker plant less than an hour away from Youngstown in Pennsylvania. The plant would make petrochemicals from natural gas that’s selling for a fraction of prices overseas. If built, the plant could encourage suppliers and other satellite businesses to set up or expand in the area.

Waltermire of Ohio’s Team NEO said the region positioned itself to play a role in wind turbine components, but demand has declined in the face of overseas competition and uncertainty over government subsidies.

“We’ve shifted people over to working on shale gas,” Waltermire said. “The region saw a boom and bust with coal mining. People have a lot of scars from that. As much as they welcome this, they want to make sure that this is done right, so their countryside isn’t despoiled.”

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